Northern Trust sued for making risky investments with LA city employees' pensions

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Los Angeles City Attorney Carmen Trutanich has accused Northern Trust of making risky investments with city pension money — and he's suing the investment bank for the money lost.

"Now you’d say to yourself, 'Well, isn’t that what happens?'" asked Trutanich. "You invest money in securities and you win or you lose. Well, not in pensions, folks. They have a fiduciary obligation to make that safe."

For more than 20 years, Northern Trust has managed investments for the Los Angeles City Employees Retirement System. The city’s lawsuit alleges that the bank invested retirement money in mortgage-backed securities and companies like Washington Mutual and Lehman Brothers that ultimately went belly-up.

Trutanich said Northern Trust kept the pension fund in the dark about just how risky those investments were, even as its chief economist predicted the housing bubble would burst.

"Northern Trust continued to let the city’s money ride on disastrous investments," Trutanich said, "even when it was apparent that market had gone south."

That resulted in losses of at least $95 million, according to the city attorney, and the city of L.A. wants its money back.

In a statement, Northern Trust responded that the retirement system did not lose money. It points out that the lawsuit comes from the city attorney, not the pension fund — which continues to make investments through Northern Trust.